August 14 - Stocks were quietly firmer at midday, following today's inflation data that was void of surprises, while Israel continues to brace for a possible attack from Iran, and as Ukrainian forces advance deeper into Russia, raising geopolitical risks in those two areas of the world. The VIX traded near 16 at levels not seen since August 1st, while the dollar index trades near 102.5, which is among the lowest levels that it has traded this year. Yields on 10-year Treasuries are trading near 3.83% at midday, while yields on 2-year Treasuries are trading near 3.95%. Crude oil prices are trading 1% lower today, while the grain and oilseed markets are mixed to higher.
I would call it a recovery bounce for the grain and oilseed markets today, following recent losses. Selling slowed today, allowing for end user buying at these cheap levels to combine with some fund profit taking to provide support. But fund managers don't fear holding big short positions when the farmer is the big "long" in the market, as is the case currently for corn, soybeans and wheat when new-crop supplies are included. And the expectation that the corn and soybean crops are getting bigger supported by a favorable August weather pattern add to that comfort level for fund managers. Geopolitical risks could always change that, but fund managers figure that farmer selling would help get them off the hook if they had to cover their short positions. Harvest lows typically aren't posted until the market is comfortable with the size of the crop, which is not yet the case.
Soybean oil prices fell sharply on Tuesday, while they've struggled to mount any type of a meaningful recovery today. The same is true for canola prices as well. That's because the California Air Resources Board hit the industry with an unexpected blow when it released proposed changes to the state's Low Carbon Fuel Standard. The latest proposed revision would require feedstocks, such as soybeans and canola, to meet new sustainability criteria, while also capping the use of oilseed feedstock use at 20%. The proposal is an apparent attempt to further push the fuel industry toward electric vehicles. Oilseed feedstocks could be used beyond 20%, but their carbon intensity score beyond that would be equal to fossil fuels, meaning they'd lose their subsidy value that makes them work economically as a feedstock. Rather, the policy favors use of other feedstocks, such as used cooking oils. The new policy proposals apply to green diesel fuel - biodiesel and renewable diesel - and not to sustainable aviation fuel. However soybean oil is not a preferred feedstock for SAF. The proposal wouldn't go into effect for a couple of years, if approved, but this is a long-term negative for soybean demand. California policies tend to set the precedent for other states to follow regarding the biofuels.
U.S. commercial crude oil stocks (excluding the Strategic Petroleum Reserve) rose by 1.4 million to 460.7 million barrels in the week ending August 9, putting them still 5% below levels typically seen in early August. Gasoline stocks fell by 2.9 million barrels, putting them roughly 3% below the five-year average for the week. Distillate stocks dropped by 1.7 million barrels, leaving them 7% below seasonal levels. Ethanol stocks slipped to 23.4 million barrels in the week ending August 9, down from 23.8 million the previous week, but matching levels seen in the same week last year. Fuel ethanol production totaled 1,072K barrels per day last week, up from 1,067K bpd the previous week, and above 1,069K bpd in the same week last year. The production of fuel ethanol utilized an estimated 105.7 million bushels of corn last week, as shown below, up from 105.7 million the previous week, and up from 103.4 million bushels the previous year. Estimated marketing year to date corn use for fuel ethanol production totals 5.122 billion bushels, up 226 million bushels or 4.6% from the previous year's pace. A strong finish to the month can still enable the industry to hit USDA's current target for corn use for ethanol production.
